Verizon Stock Didn't Deserve the Battering It Just Took

Talk about a bad case of the Mondays. The stock of seemingly mighty telecom-sector incumbent Verizon Communications (NYSE: VZ) took quite the drubbing as this trading week kicked off, at one point falling by more than 6% in value during the day.

That was a reaction to the company's latest earnings release, which in fact was notably better than the widespread sell-off would indicate.

A second-quarter miss that hurt

Verizon's second quarter saw the company book $32.8 billion in revenue, a tally that was marginally (0.6%) higher on a year-over-year basis. Speaking of marginal changes, headline net income ticked down slightly, landing at $4.7 billion from the second-quarter 2023 result of $4.8 billion. On a per-share adjusted basis, Verizon earned $1.15 against the year-ago $1.21.

Although adjusted profitability jibed with the consensus analyst estimate, Verizon missed on the top line. Collectively, pundits tracking the stock were modeling a higher tally of nearly $33.1 billion. Many investors believe that a company with the size, scale, and power of Verizon shouldn't be missing a revenue target, hence the knee-jerk sell-off that fateful Monday.

Yet in its earnings release, Verizon quoted CEO Hans Vestberg as referring to "sequential and year over year improvements," during the period. Those headline figures were both in decline, so what could he have been referring to? At least a few other important operational and financial metrics, as it turns out.

Wireless service revenue, the meat of Verizon's business and the bulk of its overall top line, saw an encouraging rise of 3.5% year over year to $19.8 billion. This was fueled by the company's massive consumer user base, which responded well to "pricing actions," and continued to opt in to the company's wireless broadband internet. Considering how large and established the telecom is at this point, that's an indication it still has at least a few levers it can pull to produce growth.

Breaking down revenue by user category, Verizon managed to increase its take from the consumer segment: It was up by 1.5% year over year to $24.9 billion. Unfortunately, the opposite was true for business users -- they spent 2.4% less for a total of $7.3 billion.

Yet even with that dark cloud, there was a silver lining: That all-important wireless service revenue notched a gain of over 2% to $3.4 billion. As with the consumer segment, the business segment benefited from Verizon's pricing shifts and the success of wireless broadband.

Overall revenue would have ticked notably higher (possibly meeting or exceeding that ever-crucial consensus analyst number) had it not been for a slump in equipment sales. While this isn't a make-or-break part of Verizon's revenue structure, it is sizable enough to matter. For the quarter, it slumped by more than 5% to just under $5 billion.

Investors shouldn't be overly concerned with this, however, since Verizon loses money on equipment sales; its wireless service, by contrast, is extremely profitable.

A solid operator and a high-yield dividend payer

Investors might have also been disheartened by management standing by its existing guidance on full-year wireless service revenue. This calls for the foundational top-line source to grow by 2% to 3.5% over the 2023 tally; in other words, it would only equal the second-quarter rate at best.

Still, the fact that long-established Verizon can continue to squeeze growth out of a relatively mature business while competing with tough rivals AT&T and T-Mobile USA is reason enough to be bullish on its stock.

Another is its high-yield dividend, which pays out at a nearly 7% rate these days -- marginally better than that of AT&T, and light-years ahead of T-Mobile's 1.5%.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy .